Rethinking DRM Dystopia

Thanks to Ed for the flattering introduction – now if only I can live up to it! It’s an honor (and a little intimidating) to be guest blogging on FTT after several years as an avid reader. I’ve never blogged before, but I am looking forward to the thoughtful, user-driven exchanges and high transparency that blogs in general, and FTT in particular, seem to cultivate. Please consider yourself, dear reader, every bit as warmly invited to comment and engage with my posts as you are with Ed’s, and Alex’s.

I want to use this first post to flag something that startled me, and to speculate a little about the lessons that might be drawn from it. I was surprised to read recently that Zune, Microsoft’s new music service, will probably scan users’ iTunes libraries and automatically buy for them (at Microsoft’s expense) copies of any protected music they own on the iTunes service.

Let’s suppose, for the sake of argument, that this early report is right – that Microsoft is, in fact, going to make an offer to all iTunes users to replicate their libraries of iTunes, FairPlay-protected music on the new Zune service at no added cost to the users. There are several questions of fact that leap to mind. Did Microsoft obtain the licensing rights to all of the music that is for sale on iTunes? If not, there will be some iTunes music that is not portable to the new service. Will copyright holders be getting the same amount from Microsoft, when their songs are re-purchased on behalf of migrating iTunes users, as they will get when a user makes a normal purchase of the same track in the Zune system? The copyright holders have a substantial incentive to offer Microsoft a discount on this kind of “buy out” mass purchasing. As Ed pointed out to me, it is unlikely that users would otherwise choose to re-purchase all of their music, at full price, out of their own pockets simply in order to be able to move from iTunes to Zune. By discounting their tracks to enable migration to a new service, the copyright holders would be helping create a second viable mass platform for online music sales – a move that would, in the long run, probably increase their sales.

I have spent a fair amount of time and energy worrying about dystopian scenarios in which a single vertically integrated platform, protected by legally-reinforced DRM technologies, locks users in and deprives them not only of first-order options (like the ability to copy songs to a second computer), but also of the second-order freedom to migrate away from a platform whose DRM provisions, catalog, or other features ultimately compare unfavorably to alternative platforms.

Of course, as it has turned out, the dominant DRM platform at the moment, FairPlay, actually does let people make copies of their songs on multiple computers. It is in general a fair bit less restrictive than what some of us have worried that we might, as consumers, ultimately end up being saddled with. Indeed, the relatively permissive structure of FairPlay DRM is very likely one of the factors that has contributed to Apple’s success in a marketplace that has seen many more restrictive alternative systems fail to take hold. But the dominance of Apple’s whole shiny white realm of vertical integration in the digital music market still has made it seem like it would be hard to opt against Apple, even if the platform were to get worse or if better platforms were to emerge to challenge it.

But now it seems that it may actually be easy as pie for any iTunes user to leave the Apple platform. The cost of the Zune player, which will presumably be exclusive to the Zune music service just as the iPod is to iTunes, is a significant factor, but given that reliability issues require users to replace iPods frequently, buying a new player doesn’t actually change the cost equation for a typical user over the long run.

What are the lessons here? Personally, I feel like I underestimated the power of the market to solve the possible problems raised by DRM. It appears that the “lock in” phenomenon creates a powerful incentive for competitors to invest heavily in acquiring new users, even to the point of buying them out. Microsoft is obviously the most powerful player in the technology field, and perhaps some will argue it is unique in its ability to make this kind of an offer. But I doubt that – if the Zune launch is a success, it will set a powerful precedent that DRM buyouts can be worthwhile. And even if Microsoft were unique in its ability to offer a buyout, the result in this case is that we’ll have two solid, competing platforms, each one vertically integrated. It’s no stretch of the imagination to think Apple may respond with a similar offer to lure Zune users to iTunes.

Bottom line: Markets are often surprisingly good at sorting out this kind of thing. Technology policy watchers underestimate the power of competition at our peril. It’s easy to see Microsoft or Apple as established firms coasting on their vertically integrated dominance, but the Zune buyout is a powerful reminder that that’s not what it feels like to be in this or most any other business. These firms, even the biggest, best and most dominant, are constantly working hard to outdo one another. Consumers often do very well as a result… even in a world of DRM.

Comments

There is another interesting fact hidden here. Much as we know that in theory all DRM can be and in practice eventually will be broken, the iTunes 6 DRM remains unbroken. While in part this can be attributed to some of the more skilled and motivated crackers working on other projects (a main Hymn developer spent his time on the dual-boot bounty problem), this is due first and foremost to Apple’s relatively relaxed restrictions on FairPlay.

Thus, it is quite possible that iTunes music will be “bought out” in the market — in effect cracked by overwhelming cash — before it is cracked. DRM never offered a realistic promise of perpetual protection, but if one DRM scheme lasts long enough to force a competitor into a buyout it has in a sense succeeded in the race against decryption. Apple will have accomplished what no other vendor has — successful survival in the DRM game — and everyone else will have to take note.

I doubt that MS has a license to access Apples database, so they are simply going to scan your Apple DRM’ed files and buy you the MS version?

If that’s the case, then those people copying songs illegally can simply convert their illegal MP3 downloads to Apple Lossless, and MS will pay to make the files legal? Sure would make a trip to the library worth it …

I feel that choice between Microsoft and Apple DRM is not representative of a market fixing the problem. These two companies, (well Microsoft still has shares in Apple doesn’t it?) Seem to me more like two puppets on the same system of DRM lockdown. I see them more as different offerings from the same overall structure. These two entities have traditionally been held up as the example that there is not monopoly and that there is choice for consumers in a very concentrated computing market. I think it is time that consumers and their representatives in policy making groups had higher standards, and did not take the spiel at face value. The idea that Microsoft/Apple are able to operate in this market does not demonstrate to me effective consumer choice. The DRM process of effectively identifying music to copy to its own system from a customer’s hard disk is yet another example of MS using spyware to generate business value at the expense of the privacy of the consumer. If there were a third party offering music to people who required that you did not pass their playlist onto competitors, then you would have an interesting discussion about choice. Musicians themselves being able to sell their music online, smaller players with custom material and licencing. We aren’t looking after these opportunities yet.
How does disk scraping affect TPMs on this music? Do MS/Apple have an agreement about access to each other’s TPMs? Do they define the TPM as being untouched by the search? Will MS start to TPM the files of competitors or always create a separate library?
What happens if the music you have bought from a Musician without DRM,
gets scanned and repackaged by MS into their TPM, and the Musician decides not to have their work carried by MS anymore. The music becomes inaccessible?
There are websites out there offering legal non-DRM material.
And artists selling work directly. What efficiencies, options and supports do these new kinds of businesses offer. Would you like each artist or website to scan your hard disk for music? If not why not? How does that legally differ from MS doing the same thing?
We are accustomed to them scanning our harddrives and reporting back is a poor response, and in the case of Sony, large ‘reputable’ compnies have not demonstrated responsible practices in this regard anyway. MS itself did not ask permission to install a spyware application, and threatened to use it to shut down the operating systems of non-upgraded computers. (A threat withdrawn for now)
What are the principles that consumers would like suppliers to comply to.
How can those principles be represented and supported legally.
ie, not some kind of cute principle set like the MS12 step plan but something which
defines fair play from a consumer’s perspective. Why dont they ask users if
they would like to scan for user selected files on the MS system. Why is involuntary disk scraping the default behaviour. Because it offers more value to the distributor and we have not established protections for our computers against these overweaning suppliers.

Dystopia from wikipedia includes:
Fictional rivalries between groups that actually operate as a cartel.
A totally or near-totally socially privatized world without a democratic republican state or with a state that only serves the business sector.
..freedom to engage in economic activities is severely limited in these dystopias, which may suppress any form of innovation as disruption
dystopia was brought about as a result of human action or inaction, whether stemming from human evil or mere stupidity.
They are strongly worded, but there are a lot of aspects of the way DRM and DMCA are implemented, who they represent, and at what expense for other parties that makes these comparisons feel uncomfortably familiar.

I have ethical issues in doing business with a company that wastefully purchases for me what I already have just so I will become their customer.

This is a for-profit business. If Microsoft ever turns a profit on this service, it means that customer acquisition costs have been paid for by the users. Even if the service turns out to be a success using this strategy, I still wouldn’t consider DRM-buyouts an admirable success of the free market.

Also, where is the incentive is this sort of deal? Good deals involve a “plus” as the incentive. This deal is a “status quo” incentive. Leave it to DRM to make consumers feel they are getting a good deal just by not losing anything.

“Much as we know that in theory all DRM can be and in practice eventually will be broken, the iTunes 6 DRM remains unbroken.”

what’s the point in breaking the iTunes drm? you can get the same songs ripped from cds in much better quality all over the filesharing networks.
breaking in somewhere because there is a lock on it sure might attract some poeple, but i think you underestimate the influence of general need to break in somewhere.

i really disbelieve that every drm will be broken, the same as not all media will be distributed via filesharing. there is so much content that seem not worth breaking into for most of the skilled people that it will never get cracked open …

You’re talking about consumers’ choices when using digital music systems exactly as the controlling companies want them to. Assuming Microsoft’s buyout plan does significantly reduce switching costs from iTunes (and that’s a big if – as we’ve seen many times before where Microsoft is concerned, there seems to be a lot of breathless speculation that the very rules of the game have changed long before an actual product appears), where does this leave the freedom to tinker?

One thing economists talk about related to monopolies and lock-in is “ease of entry.” This relates to how hard it is for new companies to enter a market that is already occupied. I think that it is the huge entry barrier, not the impossibility of another company entering the market, that is scary. Most DRM dystopias involve corporations being the only ones with the power over you, and this scenario does not disprove that. Think of the DRM on DVDs. There is no lack of competition in the DVD player market, but I am still not free to do what I want, like play a DVD on a linux computer.

I think it’s fairly safe to assume that the MS software will not be able to decode a FairPlay encoded track and make sure that it really is what the iTunes library database says it is. An interesting question then arises: How long will it be before someone manages to add fake entries to their iTunes database in order to get Microsoft to buy the relevent music for them? There would seem to be little need within iTunes for the database API to be protected from this kind of deliberate manipulation since there would be no advantage to the user of doing so (they wouldn’t get any free music out of it). However there would now be a major advantage to a Zune customer…

History shows that dying empires (read: monopolies) lash out in frustration at their citizens once the realization hits that the good times are over. The music industry is proof positive of this – their original function as distributor is really not needed in the Internet age. just look at myspace band pages…

DRM, to me, is a last ditch effort to exact more taxation out of the masses. But, this the decline of the music empire will take time, and DRM is unfortunately here to stay for the short term.

However, if you have to play with the angry giants, there are better ways to serve consumers than with an either/or proposition.

Sell consumers the rights to their music so they can download whatever DRM format they want. If their player dies, so what? They still own the right to the music and can download another DRM-protected copy.

It’s isn’t the nirvana afforded by mp3s, but it is a step in the right direction. MSFT could take the high road, for a change…

This buyout scenario gives the content industry even stronger veto power over new media devices. If one or two or three companies are offerred a cut-rate buyout package by the content industry and some others are denied a cut-rate buyout package, the companies who are denied the buyout package will be unable to compete.

I agree that users will eventually have to pay for start up costs Microsoft incurrs. However, it may be that the music industry, terrified byApple’s stanglehold on the prices of music, would provide Microsoft heavily discounted or free licenses for all music “sold” for customer acquisition. It could be a reasonable business move that would allow the music industry to break Apple’s monopoly on digital music distribution.

The plus for consumers is that they can isolate themselves against a DRM war. For example, I’m sure betamax users would have leapt at the chance to obtain their Beta library in VHS format.

The isolation would be minimal. Even if the prisoners (DRM’d music buyers) get transferred to a new prison (DRM’d music service) for free, they are still in DRM prison. And they have no idea if the new warden will be any nicer.

This may be the rare care where a a monopoly is actually better for the consumer that a duopoly or triopoly. The music industry wants higher prices, and only Apple’s ability to say no has kept prices where they are. Once the music industry can tell Apple to “talk to the hand”, the 99 cent track will be history.

If the consumer is able to move his or her library for free, but unwittingly helps develop a market where new music is priced significantly higher, has the consumer come out ahead? The primary competition involved here is between the music industry and Apple.

Jeff said “It could be a reasonable business move that would allow the music industry to break Appleâ€™s monopoly on digital music distribution.”

The problem I see is that it isn’t really good business, since my first reaction is to buy the Apple copy, and get the MS one for free. I would have two DRMed solutions. Of course, my first preference (by a long shot) is to continue buying MP3 format songs from eMusic.

I think that’s exactly the point. So then the record industry would be able to threaten to stop licensing Apple unless they adopt a “floating” price, where new release are something like $2.49. Currently they can’t do it because they have no leverage. They can’t stop licensing Apple because all of the consumers who purchased the downloads would be furious. It would point out exactly how vunerable people who buy DRM’ed music really are.

However, it they provide a transition to another DRM’ed system they they could have more teeth when bargaining with Apple. People would have both Microsoft and Apple files. If suddenly the Apple versions went away, people would grouse a little, but you wouldn’t see the same uproar.

I see what you are saying Jeff. The thing is that its probably good business for the music industry, but I don’t know if it’s good business for Microsoft. Since the bill would be going to MS, they probably won’t be doing this for very long.

I don’t see buying more MS music because of this migration of DRM files, I see buying in the most restrictive format and then letting MS buy the other formats for me. And that doesn’t seem like good business for MS, but it sounds good for Apple.

If the Apple versions went away, there would be an uproar of epic proportions regardless of the availability of Zune versions, simply because of the number of iPods already in existence.

If the music industry obtains leverage through working with another DRM’d service and therefore is able to secure the price increases it wants, why would consumers be any less furious about a price increase? Certainly not because new releases are $2.49 on both iTunes and Zune. The sole reason the music industry would subsidize a DRM buyout would be in hopes of being able to increase prices.

I wonder how much buying is really neccessary : I think the itunes allows DRM to be stripped and music copied on to CD, In this case prhaps all microsoft would need to do would be to strip the apple DRM in the approved fashion (no DMCA violation) and replace with their own, If their own DRM imposes simlar or greater restrictions perhaps that’s sufficient to keep the labels happy ? (the labels being pre-disposed to be happy with Microsoft for all the reasons above).

iTunes DRM *IS* broken – they released it broken when they allowed iTunes to burn unrestricted CDs of their iTunes tracks. From there, it’s a straightforward rip of the redbook audio from the disc into mp3.

This has similar eyebrow-raising qualities to when Sony essentially started teaching it’s customers how to circumvent its own DRM – which is a federal felony, not just a civil infringement! Are Apple and Sony aiding & abetting?

Music buyers have not only demanded the right to use third party apps to crack DRM – they’ve demanded that the vendors release broken DRM //themselves//, and save them the trouble!

I doubt Zune would transfer an iTunes library by using the DRM-free burn-to-CD feature of iTunes. Why would a user even need Zune to do this? Would the music industry support a service that automated the removal of DRM from an entire iTunes library, even if the method was entirely legal? Once the library was transferred in this manner, would it remain free of Zune DRM as well? Zune would want new customers to be locked-in to Zune, even if in appearance only (assuming Zune will have a DRM-free burn-to-CD feature as well).

I doubt the music industry would even support an explanation by Zune to Zune users that they can transfer their entire iTunes library to Zune by using the DRM-free burn-to-CD feature. Zune will need the music industry’s support so don’t expect this sort of transfer to happen unless the user does it manually without instruction from Zune.

I don’t think Microsoft will be “buying” the songs. Rather, since they use the subscription model, they’ll just download the same songs you bought in iTunes for you. But if you ever unsubscribe from the Zune service you’ll lose the ability to play the Zune version of the songs. There is no reason this couldn’t be done today with Yahoo! Music or Rhapsody or any other subscription based service that offers unlimited downloads.

I have a conceptual problem with part of this analysis. Mr. Robinson makes two statements Bottom line: Markets are often surprisingly good at sorting out this kind of thing. and Consumers often do very well as a resultâ€¦ even in a world of DRM. .

At the abstract intellectual level, Mr. Robinson is absolutley correct, that the market will sort things out, based on the consumer casting his/her dollar votes. The winner being the vendor who remains in business. However, I propose that Mr. Robinson’s thesis is not truly free market based. It is not free market based since we are not talking about selling a “new” product that adds innovation and/or adds value to the consumer. We are talking about selling the same product to the consumer where vendor “A” and vendor “B” have simply wrapped the product in different packaging (DRM).

I will also go out on a limb and propose that the market is actually operating inefficiently based on the resources/manpower/development costs of implementing DRM that offers no added benefit to the consumer. Additionally, it appears that DRM, in part, is designed to “lock” in the consumer, not to make a better product. As several posters have noted, content “protected” by DRM is transient and is easily lost, which means that the consumer losses the value of the content. I fail to see how the “planned” expiration of content by vendors is a benefit to the consumer.

I do rather hope Microsoft has negotiated a suitable discount, because otherwise this is even more unsustainable than the company’s other attempts to use its monopoly profits to buy share in other markets. They’re talking about subsidizing each Zune subscription/purchase with a set of intellectual property whose nominal value is anywhere from a couple hundred to several thousand dollars.

And if they have negotiated a discount, it will be interesting to see whether they decide to tell the record companies that their buyers own rather more tracks than they actually do, just to sweeten the deal a little further. I would hate to be the auditor for something like this.

Jack: Are we sure that Zune is going to be run on a subscription/expiry basis, as opposed to the iTunes buy-it-and-keep-it model? The Engadget preview suggests that both models are going to be offered in tandem, and that the Zune service will emphasize purchase, as opposed to subscription. If all Zune is going to do is import your iTunes playlist and let you listen to those songs as long as you are subscribed to Zune, then I take your point — my analysis above just won’t apply, since Microsoft won’t really be buying anything for Zune users. But my reading of the Engadget post was that Microsoft will buy (permanent, non-subscription) copies of the songs.

And (if I may add a second issue in the same comment): Janet — Thanks for your comment. The reminder from Wikipedia about illusory cartels as a kind of dystopia was enlightening. I guess the three civilizations whose perpetual, illusory conflict forms the backdrop to the novel 1984 would be a case in point. I do not, however, share your view of the situation as a whole. Microsoft and Apple are big and have their respective areas of dominance, but they are gearing up for a bruising fight in the music downloads market.

And let’s just be realistic: the average user won’t be that thrilled with some other service ofering another copy of the songs he owns.

We are all assuming people are *not* happy with their, say, iPod and wan’t to change. It only makes sense if that’s the case – I don’t liek my current mp3 player, I wan’t to listen the songs I’ve bought with another player.

The Zune will also lock you on WIndows. Microsoft dream is not to be the (exclusive) seller of music and players (that’s Apple’s dream) what they want is to force you to use Windows if you want to hear music. People will not fall for that, I hope. The iPod is a player of choice even without the iTunes Music Store (see the markett share in countries where the store does not operate).

First, I’m not for DRM but you do have to look at the bigger picture and why for many/most people they do not care.

This is really just an issue that has changed greatly in the last 40ish years. Prior, it was just accepted that entertainment was probably a one-shot thing like concerts or a play – if you were there, great – you were there but if not, that was pretty much it. Like an eclipse, it’s never going to be exactly the same again. In the 1950’s the start of repeating or user controlled entertainment started to gain some momentum – as income rose, more people could afford paperback books and LP’s. Then later transitorized radios and recordable reel to reel players (if you were really rich) and then recordable 8-tracks and cassettes. As casette quality got better, you could record radio nad make mix tapes. But that still took a lot of effort, the portable market (8-tracks until replaced by more portable and less wacky pre-recorded casettes continued to sell fine until Cd’s came along) because people craved CONVENIENCE (as long as it was reasonable priced). The next phase you know, VCR’s, Cd’s, DVD’s, etc …

Gradually, in the last 20-25 years, people really started to want to have more complete control over entertainment but you also have to understand that for 85-90% of people, they have ZERO interest in being able to convert or rip anything as long as their CONVENIENT access is reasonable priced.

VHS movies started at $69 to $89 in 1980 dollars, that’s probably around $150 in today’s term for ONE movie but being able to rent one for $2 to $4 for a couple days was good enough for most people. The fact they could go to a store and get a movie to take home was amazing enough – prior – it might be on TV once a year! And if you add in the fact that the cable movie cahnnels were in place, you could tape HBo or Showtime and fit 2-3 movies on a tape for $8 – not perfect but compred to before – pretty great.
Sure, there were pirates making dupes from VHS but with VCR’s costing the equivilient of $1,000 in today’s money, there was a small problem. Of course, the studios eventually added Macrovision but again for most people it was not a huge deal. They could tape it off HBO, they could now buy it for around $25 or rent it for $3. Again, convenience really trumps the desire to crack the macrovision process.

Now, let’s jump ahead to 2006. There’s no mass outcry over DRM because 90% of the people do not care. It’s like saying you cannot drive over 95 MPH on the freeway.

Part of the brilliance of the ipod is that it’s transparent. One CLICK buys, transfers and syncs your ipod so that song is on there. That trumps going down to the store, presuming the Cd is there, buying it for $18.99 plus tax and then spending minutes ripping the ONE song they want on their ipod.

Can’t get it off your ipod without needing additional software? – don’t care. This person probably bought the single, LP, the greatest hits LP, the CD, the limited edition CD, and the remastered CD – losing it along the way at school, at an old girlfriends or when they moved. It’s music. it’s disposible. It’s $.99 – who cares about keeping track of it? I’m generalizing but I’m just saying 90% of the people don’t care that much about the mechanism itself. People forget that Cd’s didn’t take off until players dropped below $200 and a few years later at $69 – or DVD’s weren’t a mass market until players were $100 or now, $29 – people don’t buy for the fidelity, it’s the convenience at the right price.

When you have that, any inability to make copies is irrevelant to most people. If they can rent it or buy it for under $20 bucks, it’s disposible.

But when the process is too unweldy like the original Divx … something like silver discs were good for 7 days, gold discs were good for 30 days and some other disc you could buy that was “unlocked.” Honestly, what moron thinks anyone is going through that hurdle to watch a feakin’ movie? The competing choice was DVD. Put it in. Hit Play.

That is EXACTLY what is going to happen with MS’ Zune. Other than hackers writing a utility to convert all their illegal mp3’s to WMA’s – who is going to sit there and wait for files to be converted – and why? To trade AAC Fairplay for WMA DRM? So it sounds slightly degraded, why?

Zune is not offering free tracks – people might sit for that – Zune is saying, gather up your Cd’s, sit for a spell and I will trade your Cd’s for ZD’s. They sound pretty much the same … wouldn’t you ask why? That’s ;like saying bring your Bic pen to Times Square, I will refill it for you – who cares that much?

So, on the issue of DRM. I understand what you’re saying and coming from but when there are alterantives that are inexpensive and it’s convenient enough – 90% of the people do not care that much. If paperback books cost $500, you don’t think people will xerox them at work? But at $5, who is going to bother? Apple has made their DRM pretty invisible so for 90% of the people, they just don’t even notice it. And especially because the preception is that yes, I can burn it to a Cd and it’s DRM free forever – by having that option, it’s like a money back guarantee, you’re not going to invoke it but it’s nice it’s there – again, because when it comes to music & entertainment, most people really consider it disposible … or 5 years later, what artist would you disavow ever listening to from 5 years ago? 🙂

Zune will win some market share from fellow WMAers but ipod users will have not very many reasons to switch.

With one click, you can buy, transfer, and sync music, videos, photos, music videos, movie trailers, movies, tv shows, podcast and audiobooks … ONE CLICK to do all that so you can take with you.

Anyone honestly think MS can match that in ease of use?

Or think Ms can organically create a Zune community on MSN so compelling people will drop their ipods?

It won’t be on pricing – apparantly the $399 version is the 30 GB and no video store at launch.

If Microsoft are proposing to buy new copies of all the songs someone’s procured through the iTunes store, this presents a moneymaking scheme (the best kind):

First, fill an iPod with iTMS tracks to the tune of a few thousand dollars ~ Next buy a Zune, which provides you with extra “licenses” to your tracks for the marginal cost of the Zune hardware. Now you can sell your Zune & iPod full of tracks to some other people for a bit more than the cost of the empty Zune or iPod (assuming you can transfer ownership of the “licenses”)…

Steve said “Of course, they wouldnt do it this way, because youâ€™d be able to do the same thing to get content from the Zune store back into itunes”

Not necessarily. Remember, you’re talking about the owner of the OS here. They can deny access to the virtual device to the programs they want. Only iTunes is allowed to write, only WMP (or whatever Zune will use) is allowed to read, and only when transferring to Zune.

Although this was big news back in July, I haven’t heard about anymore it in the last couple of months. Is this buyout plan buried (and did it even ever exist)? Anybody an idea?

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